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Compare Short Call (Naked Call) and Bear Call Spread options trading strategies. Find similarities and differences between Short Call (Naked Call) and Bear Call Spread strategies. Find the best options trading strategy for your trading needs.
| Short Call (Naked Call) | Bear Call Spread | |
|---|---|---|
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| About Strategy | Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... Read More | A Bear Call Spread strategy involves buying a Call Option while simultaneously selling a Call Option of lower strike price on same underlying asset and expiry date. You receive a premium for selling a Call Option and pay a premium for buying a Call Option. So your cost of investment is much lower. The strategy is less risky with the reward limited to the difference in premium received and paid. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear call credit spread as a net credit is received upon entering the trade. The risk and reward both are limited in the strategy. How to use the bear call spread options strategy? The bear call spr... Read More |
| Market View | Bearish | Bearish |
| Strategy Level | Advance | Beginners |
| Options Type | Call | Call |
| Number of Positions | 1 | 2 |
| Risk Profile | Unlimited | Limited |
| Reward Profile | Limited | Limited |
| Breakeven Point | Strike Price of Short Call + Premium Received | Strike Price of Short Call + Net Premium Received |
| Short Call (Naked Call) | Bear Call Spread | |
|---|---|---|
| When to use? | It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying. |
The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations. |
| Market View | Bearish When you are expecting the price of the underlying or its volatility to only moderately increase. |
Bearish When you are expecting the price of the underlying to moderately go down. |
| Action |
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Let's assume you're Bearish on Nifty and are expecting mild drop in the price. You can deploy Bear Call strategy by selling a Call Option with lower strike and buying a Call Option with higher strike. You will receive a higher premium for selling a Call while pay lower premium for buying a Call. The net premium will be your profit. If the price of Nifty rises, your loss will be limited to difference between two strike prices minus net premium. |
| Breakeven Point | Strike Price of Short Call + Premium Received Break even is achieved when the price of the underlying is equal to total of strike price and premium received. |
Strike Price of Short Call + Net Premium Received The break even point is achieved when the price of the underlying is equal to strike price of the short Call plus net premium received. |
| Short Call (Naked Call) | Bear Call Spread | |
|---|---|---|
| Risks | Unlimited There risk is unlimited and depend on how high the price of the underlying moves. |
Limited The maximum loss occurs when the price of the underlying moves above the strike price of long Call. Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received |
| Rewards | Limited The profit is limited to the premium received. |
Limited The maximum profit the net premium received. It occurs when the price of the underlying is greater than strike price of short Call Option. Max Profit = Net Premium Received - Commissions Paid |
| Maximum Profit Scenario | When underline asset goes down and option not exercised.
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Underlying goes down and both options not exercised |
| Maximum Loss Scenario | When underline asset goes up and option exercised.
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Underlying goes up and both options exercised |
| Short Call (Naked Call) | Bear Call Spread | |
|---|---|---|
| Advantages | This strategy allows you to profit from falling prices in the underlying asset. |
It allows you to profit in a flat market scenario when you're expecting the underlying to mildly drop, be range bound or marginally rise. |
| Disadvantage | There's unlimited risk on the upside as you are selling Option without holding the underlying. Rewards are limited to premium received only. |
Limited profit potential. |
| Simillar Strategies | Covered Put, Covered Calls, Bear Call Spread | Bear Put Spread, Bull Call Spread |
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